This invention relates generally to financial and estate planning and, particularly, to a computerized process for comprehensive, integrated liquidity management for use in generating a financial and estate plan, and custom designing a life insurance product for a client.
Present processes fail to provide a unified, systematic process for all aspects of liquidity planning. As a result, consumers often have separate and sequential plans for retirement and estate planning. Existing insurance products, whether fixed or variable, provide for an amount of coverage purchased through a series of payments. Except in the case of simple guaranteed cost contracts (e.g., whole life or term policies), the total amount of payments depends on non-guaranteed elements such as interest crediting rates, investment fund performance and mortality charges. As a result, a client early in life is often locked into purchasing a significantly greater amount of death benefit than is currently needed in anticipation of matching some arbitrary projection of what his or her wealth will be in the future. If the projection is too high, the client ends up in an “over-funding” situation; if the projection is too low and the term portion inadequate, the client ends up with an “exploding” policy.
In general, a policy is said to “explode” when a client's out-of-pocket premium suddenly increases from the original illustrated premium level to a much higher one. For example, the original illustrated premium and cash value may not meet the requirements for keeping the policy in force due to the lowering of interest crediting rates and raising of mortality costs. Unfortunately, the new premium needed to keep the policy in force at older ages will often be unaffordable. This typically results in the forfeiture of the policy and the loss of all premiums ever paid, all cash value and all death benefits. Existing insurance products offer very little design and policy management flexibility options to solve these problems. Moreover, the role of the insurance agent has traditionally been to assist with product selection rather than product design.
Insurance industry experts recognize that universal life and variable universal life products are also at risk for explosion and over-funding similar to traditional life products and life products with term riders.
For these reasons, a planning process is needed for reducing the risk of over-funding and exploding insurance products. Moreover, such an actuarial product design is desired to provide a consumer with the ability to make a series of discrete purchases, each of which is completed by a single payment, instead of providing an amount of coverage purchased through a series of payments. This will permit maximizing the amount of death benefit at older ages, maximizing the cash value per premium dollar, minimizing at all times the cost of “at-risk mortality” and tracking current and future liquidity needs.